July 21, 2021
Wärtsilä published its Half Year Financial Report 2021 on Tuesday 20th July 2021 at 8:30 am EEST. Here are the key messages and Q&A on the report.
Despite the relatively challenging overall market environment, our order intake grew across businesses y-o-y, with a total increase of 14%. Service order intake grew by 24% and the growth was broad and driven by several customer segments.
Net sales and operating result
Q2 net sales decreased by 7% y-o-y, mainly because of fewer scrubber deliveries and delays in energy equipment deliveries. Service net sales increased by 16%. Comparable operating result increased by 30%. The improvement in profitability was mainly driven by a more favourable sales mix between equipment and services.
Cash flow and financial position
Our cash flow was very strong, and our gearing has clearly improved. Wärtsilä’s asset-light business model, strong cash generation ability, and high service volumes deliver overall operational stability.
Wärtsilä expects the demand environment in the third quarter to be better than that of the corresponding period in the previous year. However, the prevailing market conditions make the outlook uncertain.
Q: What drove the increase in order intake in Marine Systems in Q2?
A: The main increase came from Gas Solutions, driven by the increasing LNG demand.
Q: What kind of targets you have for Voyage, and what is the long term potential?
A: Voyage is expected to break even on an EBITDA level within the next few years.
Q: What was the impact of temporary cost savings?
A: We achieved temporary cost savings of approx. MEUR 15 in Q2 and MEUR 25 YTD. Those comprised savings related to travelling, facility management, rents, and personnel. In 2020, temporary cost savings totalled EUR 100 million.
Q: Your tax rate remains elevated. Why is this?
A: The effective tax rate (ETR) has been unusually high during the recent years. Firstly, this is caused by losses made in a few countries, for which we haven’t yet been able to recognise deferred tax assets. Secondly, the absolute result before taxes has been low, which increases the impact of these losses on the ETR.
Q: Cash flow was very strong. What were the main drivers and what is your current outlook?
A: Despite the challenging operating environment, receivables collection developed positively due to our continued efforts to reduce credit risk. Payables also supported the positive working capital development, as did advances received. We continue to have a heavy focus on cash flow, but it is worth mentioning that cash flow in H1 was record high.
Q: You expect the Q3 demand environment to be “better” y-o-y – what kind of an increase in order intake in % would that translate into?
A: There are more positive signs in the market today (vaccination programmes, improved fuel spreads, certain customer segments like containerships doing well, etc.) compared to one year ago, when everything was uncertain. However, it is still difficult to put a number on it. As an example, in many of the energy core markets (emerging markets in particular) the COVID pandemic is not yet turning to a favourable direction, nor are the vaccination programmes picking up speed. The cruise industry is gradually restarting their operations. However, new virus variants may slow the process.
Q: Items affecting comparability are higher than expected by consensus. What is included there? Do you have unpublished restructuring programs?
A: Items affecting comparability amounted to EUR 14 million (6) related to both divestments in Portfolio Business and restructuring programmes, including EUR 6 million related to the closure of the joint venture Wärtsilä CME in Zhenjiang, China. Naturally, we seek cost savings wherever we can, but there is nothing we could disclose at this stage.
Q: You say zero-carbon fuels such as ammonia are gaining interest – how is this visible and what kind of business potential does that offer for Wärtsilä?
A: We have seen highly accelerated interest among our customers in future fuels and fuel flexible solutions. This is seen both from the newbuild angle in discussions on how to future-proof a newbuild vessel in the pipeline for fuel changes occurring during the lifecycle of the vessel, as well as in discussions on how to prepare the existing fleet for new fuels. We believe fuel flexibility is a distinct advantage of internal combustion engines and creates an opportunity for tighter collaboration with our customers; by combining advanced technology with outcome-based agreements we can reduce uncertainty for customers both in the investment and operational phase.
Q: Have you seen increases in raw material prices or lack of availability?
A: Yes, prices have gone up. Long-term agreements with most suppliers stabilise the situation to some extent, but there is increased pressure. We have also experienced a shortage of raw materials. With industries restarting in the pandemic aftermath, there is a supply-demand imbalance, also driven by hiccups in the logistics chain.